Tag: minimum wage

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The Government-Sanctioned Cat-And-Mouse Game

By Vlad Yurlov

Governments often try to pat themselves on the back. The minimum wage has long been a tool for this. As I began my trek from Foster Road to Oaks Park Way in 2015, I couldn’t wait to earn my own money! The minimum wage was $9.25 at the time, school was out, and I began working.

Starting off at about twenty hours a week, I was having a productive summer. A year later, I came back to an early Christmas present, the Portland Metro area received a minimum wage hike up to $9.75 on July 1st of 2016, which was just fine with me.

Then the hours shortened. New hires arrived. Overtime was a dirty word. The cotton candy I was making went up twenty-five cents! What happened?

As business-owners may tell you, these reactions were just a logical response to the pressure of the minimum wage. You get more wages, but you also work fewer hours, benefits are cut, and price increases are inevitable.

While contradictory studies continue to be published, simple logic dictates what employers do when the minimum wage rises. They try to find ways to keep their wages in step with the amount of profit workers create, and forcing fifteen dollars an hour won’t change that.

Vlad Yurlov is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

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What’s Better for Low-Skilled Workers: Higher Minimum Wages or Lower Taxes?

By Kathryn Hickok

What’s better for welfare recipients and low-skilled workers: a higher minimum wage, or a larger Earned Income Tax Credit (EITC)? David Neumark, director of the Economic Self-Sufficiency Policy Research Institute at the University of California, Irvine, explains in a recent op-ed in the Wall Street Journal why the EITC benefits low-income single parents more over time than does a higher minimum wage.

The Earned Income Tax Credit is a tax benefit for low-to-moderate-income wage earners who have dependent children. By reducing the amount of taxes owed, the EITC lessens the impact of taxation on earned income when people enter the workforce, and therefore can provide a strong incentive to transition off public assistance.

“The minimum wage does, of course, provide an immediate boost to earnings of employed workers,” Neumark writes. “But evidence indicates that minimum wages reduce employment among young workers, costing them work experience that generates earnings growth in the long run. One of my recent studies shows that the shift to higher minimum wages since 2000 has contributed significantly to declines in employment among teens in school, which can reduce adult earnings later.”

“Because it promotes work,” he adds, “the EITC should do the opposite among those eligible for its most generous benefits—low-skilled single mothers….The evidence shows that exposure to a more generous EITC leads to markedly higher earnings in the long run among less-educated single mothers.”

Neumark recommends that if lawmakers want to pursue policies “that help turn government assistance…into economic self-sufficiency,” they should incentivize work. Rather than make it harder to enter the workforce, lawmakers should make it easier for working parents to keep more of the money they earn. They’ll not only take home more of their paychecks, but they’ll also increase the skills and experience that will raise their wages. That combination is a winning path out of poverty and government dependence for working parents and their children.

Kathryn Hickok is Executive Vice President at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Minimum Wage – Its Role in the Youth Employment Crisis

By Randall Pozdena, Ph.D.

Introduction and Executive Summary

This paper examines the history of the imposition of a minimum wage, studies of its effects on youth, and the implications for current policy. A novel analytical technique produces important new findings regarding the adverse effects of the minimum wage on youth.

This topic is timely. Even as the International Labour Organization has declared that there is a worldwide “youth employment crisis,”[1] a record number of U.S. states recently authorized minimum wage rate increases, either through legislation or ballot initiative. According to the National Council of State Legislators (2016), in 2014 and 2015, 11 enacted increases through legislation[2] and four through ballot initiative.[3] Thus far in 2016, two states, California and Oregon, have enacted new minimum wage policies that sharply increase their minimum wage levels, even after adjustments for inflation. Approximately three-fifths of the states’ minimum wage levels exceed the federal minimum wage rate.

This has important bearing on the employment status of youth,[4] because many economists believe that sharp increases in the minimum wage affect youth employment particularly negatively.[5] Despite these regressive effects on this vulnerable class of workers, their plight is largely ignored in policy discussions. This paper reviews the theory of minimum wage impacts and more than four decades of others’ research on the impacts of raising the minimum wage.  I then use a statistical technique that has not been widely applied in the literature to develop my own estimates of impacts on the youth age cohort. I conclude from these efforts the following:

  • Basic economic theory argues that wage levels are a consequence of the interactions of demand and supply conditions in labor markets. Wages are not a parameter of the economy that can be manipulated without consequence. Artificially raising the wage in a market economy will result in the use of less of the affected labor. The resulting reduction in employment will occur among workers already at a productivity disadvantage relative to others.
  • Thus, youth wages are low because many are unskilled, lack work experience, and do not contribute sufficient value in the workplace to justify high wages. Since skill and productivity are acquired through accretion of experience and training, imposing a minimum wage that reduces youth employment has the potential to cause collateral damage. Specifically, doing so retards the future prospects of those who suffer the reduction in employment.
  • Most of the very large literature on the impact of minimum wages supports the notion that increases in minimum wages impairs the employment prospects of youth and discourages them from participating in the labor force.
  • Some of the key studies on which pro-minimum wage advocates rely have been criticized for poor design or implementation.

My approach confirms the view that the negative effects of minimum wage policy on youth are, in fact, material economically. I argue and demonstrate statistically that the adverse effects on youth employment and labor force participation are not only significant, but also causally related to minimum wage increases, and persistent. That is, the impacts of a one-time increase in the real (inflation-adjusted) minimum wage do not dissipate over time.

I then apply my findings to Oregon and find:

  • Oregon’s policy of indexing Oregon’s minimum wage to the Consumer Price Index (CPI)–introduced in 2002–resulted in a progressively more damaging minimum wage. This caused, by my calculation, a loss of 32,000 and 31,000 youth labor force participants and workers, respectively, over the 2002-2014 period.
  • Under Oregon’s new law passed in 2016, the youth age cohort in Oregon will lose another 52,000 jobs by 2022. This is over 22 percent of the 2015 youth labor force. Also, 63,000 more Oregon youth will withdraw from the labor force. This is over 26 percent of the 2015 youth labor force.
  • Even beyond 2023, when the graduated increases under the new law have ceased, Oregon youth will continue to lose access to employment. This is both because of the persistent (albeit weakening) echoes of the 2016 law changes and Oregon’s planned return to the 2002 indexing practice.

It is believed that labor organizations are advancing the current frenzy of large minimum wage hikes. It is argued that they see benefits to themselves––partly because their own contracts link their compensation to the minimum wage. Policy makers have joined the movement, having focused on the notion that minimum wages result in an improved distribution of income. The reality is that today’s policies will impose on many youth the cruelest minimum wage of all––a wage of zero. From this author’s perspective, regulatory intrusions into market wage-setting processes should not be undertaken lightly, both on first principles and my own and others’ analyses. If they do, as done by the International Labour Organization, then they also have to be open about their potential culpability for creating the “youth employment crisis” that they themselves now decry.

[1] ILO (2014).

[2] Connecticut, Delaware, Hawaii, Maryland, Massachusetts, Michigan, Minnesota, Rhode Island, Vermont, West Virginia, and D.C.

[3] Alaska, Arkansas, Nebraska, and South Dakota.

[4] Youth is conventionally defined as the cohort of individuals between the ages of 16 and 24.

[5] In a 1995 survey conducted the University of New Hampshire survey center, 83 percent of economists held the view that a proposed increase would have negative effects on youth employment. https://www.minimumwage.com/2015/11/survey-of-us-economists-on-a-15-federal-minimum-wage/, retrieved April 6, 2016. In a more recent survey by IGM, an expert panel was asked specifically if, under a $15 dollar minimum wage in 2020, whether “the employment rate for low-wage US workers will be substantially lower than it would be under the status quo.” Only 24 percent disagreed or strongly disagreed. Thirty-eight percent were uncertain. Note that the question was not selectively posed for the youth age group. See, www.igmchicago.org/igm-economic-experts-panel, retrieved May 5, 2016.

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